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The idea that remuneration can be withheld and subject to clawback if there is “malus” is well known to employees in financial services. However, the Bank of England is proposing going one step beyond that – allowing clawback for bonuses that have been paid out (and presumably, spent).

For the uninitiated and non-Latin speakers, “malus” refers to where there is evidence of the employee having misbehaved, made material errors, or where the firm or business unit the employee worked in suffers a material downturn in financial performance or material failure of risk management.

The proposal, if approved, would apply to all firms authorised by the Prudential Regulation Authority and would come into force at the start of 2015.

This is, on the face of it, a drastic and alarming proposal for employees in financial services, because it creates the possibility that money that has been paid to staff for work they have done years previously could be reclaimed from them. But is this going to be applied in practice and if so will it be effective and can employees find a way around this?

The first calming thought is that, as stated above, the PRA’s remuneration code already requires regulated firms to include malus provisions in their schemes for unvested remuneration. While there have been some famous applications of malus with respect to unvested awards – most notably by Lloyds allegedly clawing back 80% of a £1.45 million bonus in unvested shares from its former chief executive following the mis-selling of payment protection insurance – its application has been very rare in practice.

Given the additional complexities of enforcement in the case of vested, paid awards, one can only assume that application of malus will be even more unusual.

Second, the proposals from the PRA would be achieved by requiring all employment contracts to include express terms permitting the clawback of vested bonuses. Those really concerned about this proposal can avoid it by moving out of the regulated sector before January 1, 2015, if they have not already done so.

Third, a clawback of vested payments is already possible legally if those awards were made as a result of the employee misrepresenting his or her performance. Alternatively, the amounts of a bonus may be indirectly recoverable as damages in a claim brought against an employee for serious misconduct. In other words, for the really serious cases (and malus in practice is currently only used in egregious cases) there are already legal routes to recovery of vested awards. The new proposals arguably add nothing to what can already be done.

Finally, possession, as the old adage goes, is nine tenths of the law. Even if there are express contractual terms permitting clawback of vested bonuses (unlike unvested awards, where if there is malus the employer simply cancels them) vested awards will have been converted into cash and paid to the employee. The employee may have spent the sum claimed or have put the money beyond jurisdictional reach.

The attack on bankers’ remuneration continues but this measure is more of a PR exercise than something that should trouble employees, unless they are in the eye of a storm like the Libor scandal.